Inflation in the 2022 Housing Outlook
Inflation in the U.S. is at its highest level in decades as consumers are seeing prices rise sharply due to strong demand colliding with persistent supply shortages. That same phenomenon is affecting the housing market: the surge in demand from first-time homebuyers & current homeowners who want to buy up is noteworthy on its own, but significantly lower inventory due to under-building & people who elect to stay put is historic.
Inflation generally results from too much demand chasing too few goods and doesn’t necessarily hurt the economy as a whole, just the consumers making purchases of those goods. But price increases across a range of categories–like gasoline, autos & heating bills in addition to housing–weakens consumers’ spending power, leads to workers demanding raises, which adds to the cost of goods, exacerbating inflation in an upward spiral.
Most economists believe inflation should ease later this year as supply chains normalize, but the war in Ukraine may be the wild card that disrupts a return to normalcy. The Fed’s move to raise interest rates should dampen demand for housing a bit. That, along with more homeowners opting to cash out of their appreciated properties, should put the housing market on a trajectory toward more balance. The operative word is ‘should’. We will keep you posted.